Advantage of share cfds compared to stocks, what’s the difference between them?

The main difference between share CFDs and share investing in shares is that CFDs are leveraged, allowing you to control a larger position with a smaller margin. This leverage can magnify both gains and losses. In contrast, investing in shares is non-leveraged, meaning you need to pay the full value upfront and directly own the asset.

Key points:

1. With share CFDs, you speculate on price movements without owning the underlying asset. Instead, you use leverage, putting down a margin to open a position, which can amplify both potential profits and losses.

2. When investing in shares (also called share dealing or share trading), you directly own the asset, such as company shares, and you need to pay the full value of the position upfront.

Share CFD Trading

Share CFDs (Contracts for Difference) allow traders to speculate on the price movements of individual company shares without owning the actual stock. Instead of purchasing shares outright, traders enter into a contract to exchange the difference in price from the opening to the closing of the trade. Here are the key features of Share CFDs:

1. Ownership: CFD traders never actually own the underlying asset. Instead, they profit by speculating on the asset's price fluctuations. For instance, a CFD trader doesn’t need to physically buy or sell gold—they only speculate on its price movements.

2. Leverage: CFDs allow traders to use leverage, meaning they can open positions with a smaller initial capital outlay. Only a fraction of the trade's total value is required as a margin. However, both profits and losses are calculated based on the full value of the asset, making it a high-risk strategy.

3. Going Long or Short: CFDs provide flexibility by allowing investors to profit from both rising (going long) and falling (going short) markets.

4. Market Access: CFD trading offers access to over 15,000 global markets with 24/7 availability, enabling diverse opportunities.

5. Taxes: Unlike traditional share trading, CFDs are exempt from stamp duty, but capital gains tax still applies.

Stock investing

Stock investing is one of the most common and easy ways to dive into the financial market. It implies buying some stocks of a public company that you believe will perform well in a long-term projection. Let’s consider investing in terms of properties used to describe CFD peculiarities.

1. Ownership. When investing in stocks, in contrast to CFD trading, an investor is a total owner of the asset and may possess some shareholder privileges.

2. Leverage. An investor has to pay the full value of the financial product. Yet, it offers not so high risk of losing money since the losses can’t exceed the cost of the total investment.

3. Going long and going short. Share dealing can generate income only in case the asset's price is rising.

4. Markets. Investing allows you only to buy shares and ETFs (Exchange Traded Funds).

5. Taxes. Both stamp duty and capital gains tax have to be paid when doing stock trading.

Conclusion:

The key difference between share CFDs and share investing is ownership and leverage. With share CFDs, you don't own the underlying stock but speculate on price movements using leverage, allowing you to open larger positions with less capital. This amplifies both potential profits and losses.

Share investing, on the other hand, involves directly owning the stock, requiring the full amount upfront. Investors benefit from dividends and long-term asset appreciation but cannot use leverage. Share CFDs allow you to potentially profit from both rising (long) and falling (short) markets, while share investing typically benefits only from price increases.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.